Which of the following causes stagflation?
A)Workers push costs upward and thereby initiate inflation.
B)Wage increases equal productivity increases,thereby setting off inflation.
C)A leftward shift in the aggregate demand curve.
D)A leftward shift in the aggregate supply curve.

Question

Quizplus · Accepted Answer

Stagflation is a situation in which the economy experiences both high inflation and high unemployment. The most common cause of stagflation is a leftward shift in the aggregate supply curve, which means that the economy's capacity to produce goods and services has decreased. This can happen due to factors such as a decrease in the availability of resources, an increase in the cost of production, or a decrease in the level of technology. When aggregate supply shifts to the left, prices increase, but output and employment both decrease. This leads to stagflation. Therefore, option D is the correct answer.

Which of the Following Causes Stagflation